Question

Demote manufacturing Company Ltd. was adjudged bankrupt on a petition of its creditors, and the trustee in bankruptcy realized the following amounts from the sale of its business assets:

Cash in Bank	$14,000
Accounts Receivable	42,000
Inventories	20,000
Land & Buildings	72,000

The liabilities of the business were as follows at the time of the receiving order: (Assume all secured creditors had taken the necessary steps to protect their security.)

Rent owed to landlord (5 months @ $3,000 per month)	$15,000
Trade accounts payable	63,000
Municipal taxes payable (1.5 years)	4,000
Wages payable (2 months @ $2,500 per month - three employees)	15,000
Bank loan secured under section 427 (inventories secured)	35,000
First mortgage on land & buildings	50,000
Second mortgage on land & buildings	30,000

The expenses of liquidation were $7,000. The trustee’s fee was $5,000.

1. Show the order in which the trustee in bankruptcy made payments to the various types of creditors. Assume that all secured creditors had taken the necessary steps to protect their security.

2. Determine how many cents on the dollar the general creditors should receive?

Answer 1

1.Order in which trustee in bankruptcy shall make the payment

a. trustee's fees and liquidation expenses and taxes payable

b.workmen dues upto 12 months (wages payable)

c.secured creditors (all euqlly ranked- to be paid proportioantely)

d. amount to central govt i.e municipal taxes

2. cents to be paid to secured creditors

net amount available from asset to be paid to secured creditors=

121000

total secured creditors=193000

cents to be paid to secured creditors= 62.67 cents